# LEX MARKETS LLC X-17A-5 (2022-04-04) — Broker-dealer annual report - Company: LEX MARKETS LLC - Form: X-17A-5 - Filed: 2022-04-04 - Period: 2021-12-31 - Accession: 0001788323-22-000004 - CIK: 1788323 - File #: 8-70411 - Type: Broker-dealer - Material weakness: No - Auditor: Citrin Cooperman & Company, LLP - Auditor location: New York, NY - Contact: Michael Chung - Phone: 212-751-4422 - Email: michael@lex-markets.com - Website: lex-markets.com - Signed by: Michael Friedman (CEO) Original filing: https://www.sec.gov/Archives/edgar/data/1788323/000178832322000004/lexmarkets2021lshortver.pdf --- {0}------------------------------------------------ STATEMENT OF FINANCIAL CONDITION DECEMBER 31, 2021 (WITH REPORT OF INDEPENDENT REIGSTERED PUBLIC ACCOUNTING FIRM THEREON) {1}------------------------------------------------ | | UNITED STATES | | | | | |----------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------|-------------------------------------------------|--|--| | | SECURITIES AND EXCHANGE COMMISSION | | OMB APPROVAL | | | | | Washington, D.C. 20549 | | OMB Number: 3235-0123
Expires: Oct. 31, 2023 | | | | | | Estimated average burden | | | | | | | | hours per response: 12 | | | | | ANNUAL REPORTS | | | | | | | SEC FILE NUMBER | | | | | | | FORM X-17A-5
PART III | | 8-70411 | | | | REPORT FOR THE PERIOD BEGINNING | FACING PAGE
Information Required Pursuant to Rules 17a-5, 17a-12, and 18a-7 under the Securities Exchange Act of 1934
09/11/2020
AND ENDING | 12/31/2021 | | | | | | MM/DD/YY | MM/DD/YY | | | | | | A.
REGISTRANT IDENTIFICATION | | | | | | NAME OF FIRM:
LEX Markets LLC | | | | | | | TYPE OF
REGISTRANT (check
☒Broker-dealer
☐ Check here if respondent is also an OTC derivatives dealer | all applicable boxes):
☐Security-based swap
dealer | ☐Major security-based swap participant | | | | | | ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use P.O. Box No.) | | | | | | 25 WEST 39TH ST, 8TH FLOOR | | | | | | | | (No. and Street) | | | | | | New York | NY | | 10018 | | | | (City) | (State) | | (Zip Code) | | | | PERSON TO CONTACT WITH REGARD TO THIS FILING | | | | | | | Michael Friedman | 212-870-8708 | | Michael@LEX-Markets.com
(Email Address) | | | | (Name) | (Area Code – Telephone Number) | | | | | | | B.
ACCOUNTANT IDENTIFICATION | | | | | | | INDEPENDENT PUBLIC ACCOUNTANT whose reports are contained in this filing* | | | | | | Citrin Cooperman & Company, LLP | | | | | | | | (Name – if individual, state last, first, middle name) | | | | | | 50 Rockefeller Plaza | New York | NY | 10020 | | | | (Address) | (City) | (State) | (Zip Code) | | | | 11/02/2005 | | | 2468 | | | | (Date of Registration with PCAOB)(if applicable) | | | (PCAOB Registration Number, if applicable) | | | | | FOR OFFICIAL USE ONLY | | | | | | | | | | | | | | | | | | | | | * Claims for exemption from the requirement that the annual reports be covered by the reports of an independent public accountant must be | | | | | supported by a statement of facts and circumstances relied on as the basis of the exemption. See 17 CFR 240.17a-5(e)(1)(ii), if applicable. **Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.** {2}------------------------------------------------ | Except as follows: Jesse Daughtery | | |------------------------------------|--| | | | - - - - - - - - - - - - - - - xxxx - - - - - - - - - - - - {3}------------------------------------------------ **CONTENTS** | Report of Independent Registered Public Accounting Firm | | |---------------------------------------------------------|-----| | Financial Statement | | | Statement of Financial Condition | 2 | | Notes to Financial Statement | 3-5 | {4}------------------------------------------------ ![](_page_4_Picture_0.jpeg) # **REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM** To the Member and the Board of Managers LEX Markets LLC ## **Opinion on the Financial Statement** We have audited the accompanying statement of financial condition of LEX Markets LLC as of December 31, 2021, and the related notes (collectively referred to as the "financial statement"). In our opinion, the financial statement presents fairly, in all material respects, the financial position of LEX Markets LLC as of December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. ## **Basis for Opinion** This financial statement is the responsibility of LEX Markets LLC's management. Our responsibility is to express an opinion on LEX Markets LLC's financial statement based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to LEX Markets LLC in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statement, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statement. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement. We believe that our audit provides a reasonable basis for our opinion. # **Emphasis of Matter - Liquidity** As discussed in Note 6 to the financial statements, LEX Markets LLC has funded operations with equity contributions from LEX Markets Corp, its Parent. LEX Markets Corp has agreed to continue funding LEX Markets LLC through April 15, 2023 from currently available resources and from additional capital LEX Markets Corp may raise. Our opinion is not modified with respect to this matter. We have served as LEX Markets LLC's auditor since 2021. New York, New York April 1, 2022 {5}------------------------------------------------ # **STATEMENT OF FINANCIAL CONDITION** #### **DECEMBER 31, 2021** #### **Assets** | Cash | \$
495,564 | |------------------------------------------------|-----------------| | Accounts receivable | 8,302 | | Deposit at clearing broker | 200,000 | | Other assets | 302,849 | | Total assets | \$
1,006,715 | | Liabilities and Member's Equity
Liabilities | | | Accounts payable and accrued expenses | \$
144,555 | | Due to clearing broker | 87,138 | | Deferred revenue | 36,000 | | Due to affiliates | 213,341 | | Total liabilities | 481,034 | | Member's equity | 525,681 | | Total liabilities and member's equity | \$
1,006,715 | {6}------------------------------------------------ #### **NOTES TO FINANCIAL STATEMENT DECEMBER 31, 2021** # **1. Nature of business** LEX Markets LLC (the "Company") is an entity organized under the laws of the state of Delaware on June 12, 2019. On September 11, 2020 the Company was granted membership by the Financial Industry Regulatory Authority ("FINRA"). On September 11, 2020, the Company registered as a broker-dealer with the Securities and Exchange Commission ("SEC") and currently operates exclusively in the United States. The Company is a wholly owned subsidiary of LEX Markets Corp. ("Parent"). The Company will engage in best efforts primary issuances of registered securities and securities issued under Regulation A of the SEC; and operation of alternative trading system ("ATS") to facilitate secondary transactions on an agency basis of registered securities and securities issued under Regulation A. The Company clears its activity through an unaffiliated clearing firm, Apex Clearing Corporation ("Clearing Broker") on a fully disclosed basis. ### **2. Summary of significant accounting policies** #### *Basis of Presentation* The accompanying financial statement is presented in U.S. Dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). #### *Cash* Cash consists of cash in banks, primarily held at one financial institution. The Company at times maintains cash in deposit accounts in excess of Federal Deposit Insurance Corporation limits. The Company has not experienced any losses on such accounts. #### *Accounts Receivable* Accounts receivable are carried at the amounts billed to customers, net of an allowance for credit losses, which is an estimate for credit losses based on a review of all outstanding amounts. #### *Allowance for Credit Losses* In September 2020, the Company adopted ASC Topic 326, Financial Instruments - Credit Losses ("ASC 326"). ASC 326 impacts the impairment model for certain financial assets measured at amortized cost by requiring a current expected credit loss (CECL) methodology to estimate expected credit losses over the entire life of the financial assets as of the reporting date. The allowance for credit losses is based on the Company's expectation of the collectability of financial instruments carried at amortized cost, including accounts receivable utilizing the CECL framework. The adoption of ASC 326 had no impact on the Company's opening member's equity. The Company considers factors such as historical experience, credit quality, age of balances and current and future economic conditions that may affect the Company's expectation of the collectability in determining the allowance for credit losses. The Company determined that its cash, deposit at clearing broker, and accounts receivable were the only items in scope of the new guidance. In consideration of the historical loss-rate of zero since inception for these asset classes, while considering other current and future economic conditions, the Company assessed the risk of default from these counter parties to be virtually non-existent and considers any resultant allowance to be not material to the users of this financial statement. The Company will continue to evaluate the appropriateness of a credit loss allowance on these financial assets as facts and circumstances evolve. {7}------------------------------------------------ #### **NOTES TO FINANCIAL STATEMENT DECEMBER 31, 2021** # **2. Summary of significant accounting policies (continued)** #### *Other Assets* The Company from time to time makes payments in advance to third parties for insurance, regulatory fees or other items. The Company also classifies property related expenses on deals they have not yet closed as other asset in this category. As of December 31, 2021, the Company had \$328,576 of other assets included on its statement of financial condition. #### *Income Taxes* The Company is treated as a disregarded entity for federal and state income tax purposes and is not subject to taxes on its income. All tax effects of the Company's income or loss are passed through to the Parent. Therefore, no provision or liability for federal and state income taxes is included in this financial statement. At December 31, 2021, management has determined that the Company had no uncertain tax positions that would require financial statement recognition. This determination will always be subject to ongoing reevaluation as facts and circumstances may require. #### *Due to Clearing Broker* Net amounts owed to the Clearing Broker consist of amounts due from and payable to the Clearing Broker for fees. This balance is net of revenue and fees. ### *Deposit at Clearing Broker* The Company is required to maintain a certain amount of cash on deposit with the Clearing Broker to cover any obligations that may arise from the Company. This deposit at broker is in the amount of \$200,000. ## *Use of Estimates* The preparation of the statement of financial condition in conformity with GAAP requires the Company's management to make estimates and assumptions that affect the amounts disclosed in the financial statement. Management believes that the estimates utilized in preparing the financial statement are reasonable. Estimates, by their nature, are based on judgment and available information. Actual results could differ from those estimates. ### *Fair Value of Financial Instruments* At December 31, 2021, the carrying value of the Company's financial instruments, such as accounts receivable, approximate their fair values due to the nature of their short term maturities and are categorized as Level 2 investments. {8}------------------------------------------------ ### **NOTES TO FINANCIAL STATEMENT DECEMBER 31, 2021** ## **3. Related-party transactions** The Company's balance due to the Parent under the administrative services agreement was \$195,613 and is included in Due to affiliates on the Statement of Financial Condition at December 31, 2021. The Company's balance due to the Parent under the Intercompany Intellectual Property License Agreement was \$17,728 and is included in Due to affiliates on the Statement of Financial Condition at December 31, 2021. #### **4. Net capital requirement** The Company, as a member of FINRA, is subject to the Securities and Exchange Commission Uniform Net Capital Rule 15c3-1. This Rule requires the maintenance of minimum net capital and that the ratio of aggregate indebtedness as defined to net capital, shall not exceed 15 to 1. The rule also provides that equity capital may not be withdrawn or cash dividends paid if the resulting net capital ratio would exceed 10 to 1. At December 31, 2021, the Company's net capital was \$214,530 which was \$184,861 in excess of its computed minimum net capital requirement of \$29,669. ### **5. Concentration of credit risk** The Company maintains its cash balances in a bank account at a financial institution, and at times the balance may exceed the federally insured limit. The Company is subject to credit risk to the extent any financial institution with which it conducts business is unable to fulfill contractual obligations on its behalf. ### **6. Liquidity** The Company, like most venture backed fintech startups, has funded operations with equity contributions from its Parent based on the potential value of long term goals of the Company and its Parent (together the "Companies") and their ability to attract venture capital investors as they make progress toward their long term goals. The Parent has agreed to continue funding the Company through April 15, 2023 from currently available resources and from additional capital the Parent may raise. With the successful transaction of one property on the platform in 2021 and the recent IPO in early 2022 of a second, the Companies' plan for the remainder of 2022 is to accelerate the rate of on-boarding properties to the platform and increase the dollar value of these transactions. There are currently two properties listed on the platform, and two others with signed engagement letters working towards being listed. Since 2019, the Parent has raised investor capital of approximately \$2.8 million in 2019, \$6.4 million in 2020, \$12.6 million in 2021, and through March 31, 2022 an additional \$4.4 million. The Parent is planning to raise additional capital through the remainder of 2022 as the Companies achieve critical milestones which are anticipated to raise investor interest. Increasing revenues from additional properties on the platform, coupled with continued capital contributions from the Parent to the Company from funds raised from new and existing investors, are the primary drivers for the next year of operations. If funding were to be delayed or not available, the Companies may delay certain expenditures or delay the hiring of additional staff. #### **7. Subsequent event** Management has evaluated subsequent events for potential recognition and/or disclosure through date of the audit report, which is the date the financial statement was available to be issued. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.